Australia has a lot of foreign businesses and it has a lot of immigrants. Both earn Australian dollars and huge amounts would be sent back their country of origin.
His does Australia balance its books on something like this? How do the economics of it work? Would it lower Australian inflation but shortening the money supply, and raise inflation of the destination country as it prints more money to exchange the Australian dollar?
Well those australian dollarydoos aren’t useful in their home countries, so it is used to buy domestic money at an exchange.
The other responses are missing this point. This is the right answer. The AUD does not actually leave the country. If money is being sent to America, it is converted to USD first. In theory, the value of USD increases since there is greater demand and the value of AUD decreases. This is the mechanism of exchange rates.
Obviously, it gets a little more complicated than this, but in theory that is what is happening.
The amount that is sent out is just irrelevant. Furthermore, not all immigrants send money out. The second biggest group of immigrants are from the UK, they aren’t sending much money home and any they do is offset by Australians who emigrated to the UK sending money to Australia. Other immigrants even bring in more money. For example, overseas students bring a lot of money into Australia, often at a premium. The same degree costs a domestic student 45k but an overseas student 170k. The business and innovation visa requires a minimum of 2.5 million investment. While there are probably more immigrants sending money home, the amount others bring in offsets a lot of that. It’s similar to tourism. Yes, Australian tourists going abroad spend money elsewhere, but many tourists are coming into the country and spending money.
With companies, the situation is more difficult. While in theory, they are subject to paying taxes in Australia and aren’t any different than local companies there are indeed ways around it. Most notably, having to pay the foreign parent company huge “franchising fees” or other “consultation fees” that reduce profit inside Australia, and then the profit gets taxed in a country with little or no corporate tax. And Australian companies use the same loophole as well. Registering an offshore company isn’t particularly difficult. That is indeed something countries try to work against.
Any legitimate money sent abroad is mostly offset by Australian companies doing the same. It’s not like there aren’t any Australian companies working globally.
The reason why most countries don’t go harder against that is that it would hurt foreign relations. And the damage to foreign relations would hurt the economy more. If everyone starts to count pennies and tries to maximize their own profits, every international trade becomes more expensive.
For example, the Indian-Australia trade agreement is vastly in favor of Australia. Australia is exporting goods worth over 19 billion a year while only importing around 7.5 billion. If Australia suddenly started to make it harder for Indian immigrants to send money to India, you can be sure that India will start taxing Australian goods more in retaliation.
In conclusion, going after this hard would mostly be penny-pinching and hurt the economy more in the long term. And countries that make this harder are suffering because of it. Look at China, where it’s impossible to operate a foreign business. Any business needs to have a 51% share owned by a Chinese. And while this worked in the short term, companies are now leaving China en mass and taking their business elsewhere.
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- Have non-shitty standard of living
- Don’t be authoritarian/fascist
- Get the smartest 2nd- and 3rd-worlders to immigrate
- ???
- Profit
Example: literally any country in west Europe
Counter-example: Russia, China, Hong Kong
The effect is deflation but that’s usually offset by deficit spending.
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Well, I don’t know. Let’s say a Bangladeshi guy earns $1,000 AUD and sends $500 home each week, then lives off the remainder.
He’s only contributing to the Australian economy $500 per week instead of the full $1,000 in bank-invested savings or other purchases. Meanwhile the other $500, minus an exchange rate, sits in another country’s bank or contributes to purchases there, fuelling that economy.
I mean, I’m guessing here. My economics knowledge is fairly limited.
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That 500AUD doesn’t just sit in an account and magically contribute to anything.
Currency exchange doesn’t actually happen in a vacuum. The only reason your Bangladeshi example is able to send 500AUD to his family, is that someone who has Bangladeshi Taka wants 500AUD to buy goods or services from somewhere that accepts AUD. And there’s a very short list of countries that spend AUD.
So that 500 doesn’t disappear to never return. That 500 is sold to someone who wants to use it to purchase australian exports.
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Just a nit-pick. The immigrant in this case is probably contributing more to the economy than the $1,000 he gets paid to do it.
If you didn’t have that guy working in Australia, your economy either would’ve shrunk by more than 1000 AUD or you would’ve imported goods or services costing a lot more than 1000 AUD. That guy’s employer pays him 1000 AUD because it is profitable compared to the alternatives.
If you had locals capable of doing the same work, that employer or the government wouldn’t have sponsored a foreign worker. They would’ve employed a local instead.
He also contributes his labour, he is frequently underpaid because of his noncitizen status and because he is from Bangladesh he has to have his own medical insurance until he jumps visa hoops. Those visa hoops are also expensive and people from countries like England don’t have to jump some of them because they have a Medicare reciprocity agreement in place. There are other challenges too.
Make no mistake, Australia scrapes every cent it can from foreign workers and still complains about them sending their families remittance.
Plus he is contributing to the workforce without having cost a penny for his/her upbringing.
We need to consider that educating and taking care of children up to working age costs money and resources. Having trained workers join your country for free is always a boon (unless other costs add up).
Great point. Plus he has been screened to exclude people with disabilities. Only the people least likely to use future resources are allowed in at all.
There’s a LOT that goes into global monetary policy. I know more than some, but it’s complicated in a way that’s not easy or quick to explain here.
So to try and keep it short, there’s at least a couple major trade-offs. First, it would be somewhat offset by Australian immigrants working in other foreign countries and sending money home to Australia. Second, Australia has global trade partners for a multitude of things and can offset imbalances through borrowing or lending through international trade if and when needed.
There’s really so much more that goes into it and it’s a bit different for every country, but that’s a broad idea of how it can balance out.
Ahh, okay. Yeah I imagine it’s a spider’s web of in-and- money-flow, macroeconomics at play.
So you’re saying it does balance with everything considered? And to remain a wealthy country our bottomline must be in the black when all added up?
theres mechanisms to help balance it out, like forex markets, currency pegging to standards, and actual transfers of gold.
